DP12325 Rising inequality and trends in leisure

Author(s): Timo Boppart, Liwa Rachel Ngai
Publication Date: September 2017
Keyword(s): balanced growth path, Home Production, inequality, Labor Supply, leisure
JEL(s): E24, J22, O41
Programme Areas: Labour Economics, Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12325

This paper develops a model that generates rising average leisure time and increasing leisure inequality along a path of balanced growth. Households derive utility from three sources: market goods, home goods and leisure. Home production and leisure are both activities that require time and capital. Households allocate time and capital to these non-market activities, work and rent capital out to the market place. The dynamics are driven by activity-specific TFP growth and a spread in the distribution of household-specific labor market efficiencies. When the spread is set to match the increase in wage inequality across education groups, the model can account for the observed average time series and cross-sectional dynamics of leisure time in the U.S. over the last five decades.